At the forefront of every American’s mind right now, whether they own a business or not, is the highest inflation rates in 40 years that we are currently facing. In May, we saw a surge in prices, and the decrease in this surge is expected to be slow, as many economists predict inflation will hold steady at about 8.3% for an extended period of time. According to the Labor Department, the consumer price index increased 8.6% annually, which is the largest rise since December 1981. In May alone, consumer prices increased 1% as opposed to the .3% increase seen in prior months. This spike in prices seen during the month of May leaves many experts skeptical of any return to normalcy anytime soon.
An Increase in Interest
In response to this increase in inflation, the Federal Reserve announced an increase in interest rates this month to increase the cost of borrowing and restrict liquidity. This increase saw a bump of .75 percentage points, reaching a target range of 1.50 to 1.75 percent. This came after an increase of 50 basis points last month.
These types of economic shifts leave many companies hesitant about their next move as they see a decline in access to capital, particularly capital that does not dilute ownership. Many of these companies are faced with three connected issues:
- They need capital to grow their business.
- They believe in the long-term prospect of their company and do not want to dilute their ownership by seeking capital from private equity firms.
- The alternative to diluting ownership is a loan, but the higher interest rates on loans make this option more expensive and less feasible.
In light of these three concerns, many companies are questioning where it might be most feasible to compromise. Do they take on more expensive debt to access non-dilutive funding, or do they dilute ownership of their company to gain capital without the increased expenses?
But what if no compromise is necessary? Federal funding through the DoD may provide the answer.
An Increase in the DoD Budget
House lawmakers recently advanced plans for an $840 billion defense policy bill. A main purpose of this increase in budget is to allow for the purchase of new equipment, allotting $761.681 billion in discretionary spending.
Unlike the commercial market, which tends to trend down in spending―particularly spending on new technology―as interest rates increase, the government is prioritizing the DoD budget and new innovations in the midst of rising tensions in Eastern Europe.
Your Launch Pad
So how do these two scenarios connect? How can companies with a commercial tech transition to access federal funding set aside for the DoD?
This bill not only proposes more money allotted to the DoD, but it also proposes the reauthorization of a major entry point for many commercial companies to access these federal dollars through the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program. These programs, if leveraged well, can provide the liquidity you need to grow.
While these programs provide awards of up to a couple million in R&D funding, the real win occurs in something else they provide for those who win, and that is sole-source authority. This provides the ability to shorten acquisition timelines from years to months or, in some cases, even weeks, in comparison to the traditional competitive process, which provides necessary funding to small U.S. businesses and gets essential technology to the warfighter.
This means:
-No high-interest loans.
-No diluting your ownership.
Just the money you need to further develop your technology for military use-case and then the further sole-source authority to bring your technology to market.
So, while the increase in interest rates is concerning, particularly to those who prefer to avoid diluting ownership of their business when seeking capital, there are options for those willing to diversify their revenue streams by seeking federal funding. While the government is certainly not immune to the changes posed by the current economic climate, they are actively working to adjust their budget in ways that allow them to continue seeking the top innovative technologies from U.S. companies. If you are interested in putting your technology in the race, now is an incredibly optimal time.
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